British Airways in merger talks with Qantas

London: British Airways PLC and Australia’s Qantas Airways Ltd. said they are holding talks about a potential merger, sparking hopes of consolidation in the hard-hit aviation industry.

The two companies both issued statements on Tuesday saying they are exploring a “potential merger” with each other “via a dual-listed company structure.”

Neither BA nor Qantas provided any further details. In their statements to the London Stock Exchange and the Australian Securities Exchange, the two companies said: “There is no guarantee that any transaction will be forthcoming and a further announcement will be made in due course, if appropriate.”

BA’s chief executive Willie Walsh has long advocated industry consolidation, arguing that closer cooperation will help airlines cut costs in the current difficult economic climate.

BA, the third-largest airline in Europe, is already pursuing a revenue-sharing deal with American Airlines and Spain’s Iberia SA. It said that its discussions with Iberia on a potential merger are continuing.

It provided no further detail on the structure of the potential deal with Qantas but confirmed that talks began in August after it was approached by Australia’s largest airline.

In Sydney, CMC Markets Stockbroking general manager Andrew West said a tie-up between the carriers would be a positive move for Qantas, particularly in currently tough airline market.

“If the deal goes through it will create a formidable airline that has a major share of major routes to the US, UK and Asia,” he said.

British Airways stock jumped after the announcement and closed 12.46% higher at $2.33 at the end of the day.

Shares in Qantas surged as soon as the Australian stock market opened on Wednesday, buoyed by the overnight announcement of the merger talks.

Virgin Atlantic Airways, which has already objected to the BA-American-Iberia tie-up, said that BA was attempting to increase its dominance to the detriment of competition.

“One day it’s Iberia, then it’s American, and now Qantas,” said Virgin Atlantic chief executive Steve Ridgway. “The only strategy BA seems to have is to lock-up some of the busiest routes in the world, against the consumer interest.”

BA and Qantas are already code sharing partners in the Oneworld global alliance, which brings together 10 of the world’s carriers including Japan Airlines.

Analysts have been expecting greater consolidation in the airline industry after the global economic crisis combined with soaring oil prices earlier this year to severely crimp passenger demand.

The International Air Transport Association has reported international passenger traffic declined 1.3% in October compared with 2007, following a 2.9% drop in September, and forecasts industrywide losses of $2.3 billion this year.

The agreement is the closest alliance the trio can form under strict US airline ownership laws that all but rule out a full merger and follows two earlier failed attempts by BA and AMR Corp.’s American to forge closer ties.

Virgin Atlantic claims that proposed deal will seriously damage the competitiveness of the lucrative trans-Atlantic route and increase fares for passengers.